scholarly journals BANK RUN AND STABILITY OF ISLAMIC BANKING IN INDONESIA

2017 ◽  
Vol 3 (1) ◽  
pp. 25-60 ◽  
Author(s):  
Rahmatina A. Kasri ◽  
Tika Arundina ◽  
Kenny D. Indraswari ◽  
M. Budi Prasetyo
Keyword(s):  
Factor Analysis ◽  
Financial Stability ◽  
Banking System ◽  
Bank Runs ◽  
Primary Data ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Bank Run ◽  
Banking Stability ◽  
Conventional Banks

Bank run is an important economic phenomenon which increasingly occurred in in modern banking system and potentially threatened banking stability as it could trigger a banking crisis. However, most studies related to bank run focus on the occurrence of bank run in conventional banking system. Very few of them discuss the bank run phenomenon under Islamic banking system or dual banking system where Islamic banks jointly operating with conventional banks. Therefore, this study attempts to analyze the determinants of bank run in the Indonesian Islamic banking industry by employing primary data from 256 customers of Indonesia Islamic banks in 2015 and by utilizing factor analysis and descriptive statistics. In theory, Islamic banks tend to be more resilient towards any macroeconomic or financial shocks as compared to conventional banks due to the nature of its asset-based and risk-sharing arrangement. However, the result exhibits that both psychological and fundamental factors (i.e. macroeconomics and bank fundamentals) strongly influence the behaviors of Islamic banking depositors to withdraw their funds, which might trigger the occurrence of bank runs in the country. Insider information, macroeconomic condition and bank fundamental factors are also shown to have the highest impacts among all variables. Hence, in the context of banking stability, the finding implies that Islamic banks are not completely immune to the impacts of macroeconomic shocks or financial crisis. As a country with a dual banking system, Indonesia had experienced several bank runs since 1990s. Therefore, the findings of the study should provide the policy makers important insight into research based-policy in order to attain financial stability as one of the main economic goals of the country.Keywords: Bank run, Islamic bank, Factor analysis, IndonesiaJEL Classification: C83, G21, G28

scholarly journals Non-Performing Loan and Financial Stability of Banking Industry in Pakistan

2020 ◽  
Vol 9 (4) ◽  
pp. 347-356
Author(s):  
FAZLI RAHMAN KHAN ◽  
MUHAMMAD NISAR KHAN ◽  
SAIMA UROOGE
Keyword(s):  
Commercial Banks ◽  
Financial Stability ◽  
Secondary Data ◽  
Panel Data Models ◽  
Leverage Ratio ◽  
Common Effect ◽  
Effect Model ◽  
Banking Stability ◽  
The Common ◽  
The Stability

The objectives of this study to assess the state of financial stability of commercial banks in Pakistan and then estimate how good, bad and worst economic conditions would influence the stability. Our design of the study is a mix of techniques. Pakistan have not experienced financial crisis due to some shocks, therefore stress events and its effects not included in design. This study examines the effect of non-performing loans on financial stability empirically. Based on the above premise, this thesis investigates the association of financial stability with non-performing loans for all commercial banks of Pakistan for the period of 2014-2018. The study used the 27 commercial banks having 162 bank year observations. The study measured of financial stability (FS) through the financial leverage ratio and liquidity ratio using the common effect model. For the non-performing loans this study uses the non-performing loan ratio. Using secondary data that is panel in nature and applying panel data models for analysis, the study finds out that non-performing loans negatively associated with financial stability of commercial banks in Pakistan. Keywords: Loan, Finance, Banking, Stability, Pakistan.

Testing the interrelatedness of banking stability measures

2014 ◽  
Vol 6 (1) ◽  
pp. 25-45 ◽  
Author(s):  
Vighneswara Swamy
Keyword(s):  
Emerging Economies ◽  
Financial Stability ◽  
Banking System ◽  
Financial System ◽  
Capital Adequacy ◽  
System Stability ◽  
Var Model ◽  
Content Type ◽  
Banking Stability ◽  
Asset Quality

Purpose – This study aims to investigate the inter-relatedness and the dynamics of banking stability measures and offers answers for some of the related issues such as does financial stability require the soundness of banking institutions, the stability of markets, the absence of turbulence and low volatility? and to what extent the soundness of banking sector in the case of emerging economies can help financial system stability. Design/methodology/approach – This study investigates banking stability by structuring a recursive micro panel vector auto regressive (VAR) model and corroborates the significance of the interrelatedness of the bank-specific variables such as liquidity, asset quality, capital adequacy and profitability by employing a robust panel data drawn from 56 leading banks for a period of 12 years. Findings – A significant contribution of this study is in establishing that liquidity in the banking-dominated financial system is reciprocally related with asset quality, capital adequacy, and profitability of the banking system and in effectively forecasting banking stability employing micro panel recursive VAR model. Research limitations/implications – The study could be further broadened by employing a macro and structural VAR modelling to forecast banking stability. Practical implications – This paper is one among the evolving body of literature that underscores the significant relationship between banking system resilience and financial stability in the context of emerging economies dominated with banking systems. Further, the forecast model is able to capture the dynamics of banking stability with greater and appreciable accuracy. Originality/value – The uniqueness of the study is in modelling banking stability measures in the context of banking-dominated emerging economy financial systems by employing micro panel recursive VAR model by deriving data from 58 leading banks for the period of 12 years from 1996 to 2009 and in offering insights in understanding financial stability with comprehensive literature review.

scholarly journals Determinants of Banks’ Financial Stability in Kenya Commercial Banks

2020 ◽  
pp. 48-57
Author(s):  
Loice Koskei
Keyword(s):  
Exchange Rate ◽  
Regression Model ◽  
Public Debt ◽  
Significant Relationship ◽  
Financial Stability ◽  
Inflation Rate ◽  
Banking Industry ◽  
Multiple Regression Model ◽  
Return On Assets ◽  
Banking Stability

Introduction: The collapse of several banks in Kenya followed by a possibility of acquisition of struggling banks led to bank runs in Kenya causing customers to withdraw their deposits from stressed banks and taking them to financially stable banks. Aim of the Research: The paper investigated the determinants of Bank’s stability as proxied by asset quality in the Kenyan banking sector. Data Collection: Monthly secondary data spanning from the period January 2015 to December 2019 was collected from central Bank of Kenya and Kenya National Bureau of Statistics. Methodology: A multiple regression model with the help of SPSS statistical software was employed to address the objective of this study. Main Results: The multiple regression model results indicated that liquidity ratio; inflation rate and lending rate results presented a negative but statistically significant relationship with banking stability indicating that a decrease in liquidity ratio, inflation rate and lending rates affect banking stability respectively. The results for loan growth and return on equity exhibited a positive but statistically significant relationship with banking stability indicating that an increase in growth of loans and returns on equity diminishes and enhances banking stability in Kenya respectively. Exchange rate results had a positive and statistically insignificant relationship with banking stability implying that exchange rate does not affect banking stability. Return on assets and public debt results indicated a negative and statistically insignificant relationship with banking stability implying that return on assets and a country’s public debt has no effect on banking stability respectively. Recommendation: Banking financial stability is fundamental in reducing the far-reaching social and economic effect that could occur due to challenges facing the banking industry. The study recommends adoption of policies that minimize the negative effect of microeconomic and macroeconomic factors in the banking industry in Kenya.

scholarly journals Role of Central Bank Independence in Banking and Financial Stability Ensuring

2020 ◽  
Vol 4 (2) ◽  
pp. 115-121 ◽  
Author(s):  
Victoria Dudchenko
Keyword(s):  
Developing Countries ◽  
Central Bank ◽  
Financial Stability ◽  
Fixed Effects ◽  
Developed Countries ◽  
Central Bank Independence ◽  
Stage Of Development ◽  
Banking Stability ◽  
The Impact

This paper is devoted to defining the role of the central bank in ensuring banking and financial stability. The main purpose of the study is to assess the direction and strength of the impact of central bank independence in terms of its individual aspects on the parameters of banking and financial stability for different groups of countries. Systematization of literature sources and the results of existing empirical research has shown that the expected effects of increasing the independence of the central bank are to improve banking and financial stability. For the study, a sample of statistical data for 10 developed and 10 developing countries for the period 1991-2012 was formed. The methodological basis of the study were the tools of panel regression modeling with fixed effects with Stata software use. The article presents the results of empirical analysis, which showed that the independence of the central bank is an important factor in ensuring banking stability. At the same time, the impact on financial stability has not been conclusively confirmed. The study empirically confirms and theoretically proves that the stage of development of the country determines the strength of such influence. Thus, developed countries generally show closer links between central bank independence and banking and financial stability, which in most cases are directly dependent, while developing countries have less lasting effects. The results of the analysis of the links between certain aspects of central bank independence and the level of banking and financial stability are of great practical value. The results of the study create a scientific basis for substantiating the sequence of actions aimed at strengthening the independence of the central bank. Thus, in developing countries, the focus should be on defining and prioritizing central bank goals, while developed countries should take a deeper approach to this issue and ensure the independence of monetary policy and financial independence of the central bank. Keywords: central bank, independence, banking stability, financial stability, Z-score, non-performing loans, capitalization, developed countries, developing countries, panel data.

scholarly journals Indian Banking Sector a Major Contributor to Economy: Constancy Major Concern

2019 ◽  
Vol 8 (4) ◽  
pp. 11596-11608
Keyword(s):  
Financial Stability ◽  
Impact Analysis ◽  
Banking Sector ◽  
Vital Role ◽  
Foreign Banks ◽  
Five Dimensions ◽  
Adequate Fund ◽  
Banking Institutions ◽  
Banking Stability ◽  
Asset Quality

Due to an intermediary role of banks in the economy, they hold a unique locus across all sectors with prudent lending policies, environmental impact analysis, and efficient credit approval systems. The banks play a vital role in the lending process which is dispatched along with the credit risk, that is, when the borrower fails to repay the money borrowed and fails to satisfy the obligations, then the asset is said to be bad or Nonperforming. A poor financial performance in an economy creates a distress in the economic stability leading to an economic crisis. The banking stability has a direct impact on the real output and employability which revolves around the financial stability of an economy. With the global initiatives undertaken, the Reserve Bank of India (RBI) developed Banking Stability Map and published the Financial Stability Report in 2010. It is measured using five dimensions of Stability Map, which are, Soundness(s), Asset Quality (Q), Profitability (P), Liquidity (L) and Efficiency (E).With the upsurge in the deteriorating asset quality and the financial health of banking institutions, lack of adequate fund and pressure of capital regulation makes the balance of stability in the Indian banking sector a challenge. The main objective of the study is to conduct a comprehensive review of all the possible dimensions of financial stability in the country across the Public Sector, Private Sector and Foreign Banks through Statistical tools from a time period of 13 years from 2005-2018. The statistical data and figures will be beneficial for the upcoming researchers and policymakers, as it displays an overview of the banking stability across the three main tiers of the banking world.

Banks’ stability-efficiency within dual banking system: a stochastic frontier analysis

2015 ◽  
Vol 8 (4) ◽  
pp. 472-490 ◽  
Author(s):  
Salma Louati ◽  
Younes Boujelbene
Keyword(s):  
Financial Stability ◽  
Banking Sector ◽  
Stochastic Frontier Analysis ◽  
Stochastic Frontier ◽  
Banking System ◽  
Content Type ◽  
Frontier Analysis ◽  
Explanatory Variables ◽  
Banking Stability ◽  
Conventional Banks

Purpose – The purpose of this paper is to examine and compare the market power and the efficiency-stability of Islamic and conventional banks in the MENA zone and South East Asia during the 2005-2012 period. Design/methodology/approach – The author applied an empirical approach in two steps. First, the author estimates the Lerner indicator, which is a measure of competition. Then, this measure is regressed and other explanatory variables on the banking “stability-efficiency” are derived simultaneously from the estimation of a stability stochastic frontier. Findings – The author concludes that increased competition in the Islamic banking sector promotes the overall banking stability. Besides, whether there is a low or high competitiveness, the size of an Islamic bank is positively related to financial stability. However, large conventional banks operating in market with limited competitiveness become more involved in the risk behavior. The author concludes that capitalization has a positive effect on stability only in case of low competitiveness. Originality/value – The originality of this research lies in the application of the stochastic frontier approach (SFA) on the Z-score indicator. This methodology enables to take into account the differences between the current and the optimum stability that each bank can achieve, thus creating a new measure of financial stability called “efficiency-stability”.

Does bank competition promote economic growth? Empirical evidence from selected South Asian countries

2019 ◽  
Vol 8 (2) ◽  
pp. 201-223 ◽  
Author(s):  
Bijoy Rakshit ◽  
Samaresh Bardhan
Keyword(s):  
Economic Growth ◽  
South Asian ◽  
Financial Stability ◽  
Joint Effect ◽  
Bank Competition ◽  
Banking Competition ◽  
Content Type ◽  
Lerner Index ◽  
Asian Economies ◽  
Banking Stability

Purpose Bank competition and financial stability are often cited as important drivers of economic growth. Bank competition plays a very significant role in enhancing the efficiency and determining the stability of a financial system. However, a question of interest is whether bank competition enhances or hindrances the economic growth of a country. The purpose of this paper is to investigate the role of bank competition and financial stability on economic growth for selected South Asian economies over the period 1997–2016. Design/methodology/approach To investigate whether bank competition enhances or hinders economic growth, the author applies a two-step estimation technique. First, the author estimates bank competition using the Lerner index and adjusted Lerner index and, second, examines the joint effect of bank competition and financial stability on economic growth applying both panel regression model and system GMM techniques. Findings Empirical findings reveal that the banking sector in South Asian economies is competitive as indicated by the estimated values of Lerner and adjusted Lerner index. Moreover, the joint effect defined by the interaction between banking competition and banking stability also reveals a positive and significant impact on economic growth. This finding implies that both banking competition and banking stability are significant long-term determinants of economic growth in South Asian economies. Practical implications This paper suggests flexible banking regulation policies such as low net interest rate margins, lesser activity restrictions and entry of foreign banks along with few contestability measures to increase bank competition in South Asian countries. This is because as higher the competition, greater is the chance for efficient allocation of resources and hence economic growth. Originality/value This paper is the first of its kind that considers the joint role of bank competition and financial stability on economic growth. The application of a semi-parametric approach in the estimation of marginal cost is also a unique contribution to empirical literature.

Canadian Banking Stability through the Global Financial Crisis of 2007–8

2019 ◽  
Vol 28 (1) ◽  
pp. 114-146
Author(s):  
Geoffrey McCormack
Keyword(s):  
Financial Crisis ◽  
Financial Stability ◽  
Capital Accumulation ◽  
Global Financial Crisis ◽  
Credit System ◽  
Balance Sheets ◽  
Marxian Analysis ◽  
Banking Stability ◽  
The Global Financial Crisis ◽  
Canadian Banking

Abstract One of the leading explanations for Canadian banking stability through the global financial crisis of 2007–08 is the Concentration-Stability Hypothesis (CSH), according to which the oligopoly of Canadian finance stabilised the credit system by cushioning it with above-average profits. These provided a buffer against fragility and incentives against excessive risk-taking. In this article, I critically examine CSH and show that classical Marxian analysis more effectively illuminates Canadian banking stability. I demonstrate that robust corporate profitability and capital accumulation before the crisis strengthened the balance sheets of the banks and supported them through those turbulent years. Thus, financial stability is linked explicitly to broader economic stability, and the latter is linked to the profitability of business enterprise.

scholarly journals Measurement and analysis of factors that affecting the financial stability of private banks registered in the Iraq Stock Exchange for the period (2017-2013): قياس وتحليل العوامل المؤثرة في الاستقرار المالي للمصارف الأهلية المسجلة في سوق العراق للأوراق المالية للمدة (2013-2017)

2021 ◽  
Vol 5 (18) ◽  
pp. 176-161
Author(s):  
Rawaa Ahmad Yousif Rawaa Ahmad Yousif
Keyword(s):  
Financial Stability ◽  
Stock Exchange ◽  
Capital Adequacy ◽  
Financial Indicators ◽  
Linear Regression Models ◽  
Basel Committee ◽  
Private Banks ◽  
Banking Stability ◽  
The Stability ◽  
The Impact

The objective of this study was to measure the banking factors (capital adequacy, credit capacity, and revenue capacity) and to show their impact on the banking stability of the private banks registered in the Iraq Stock Exchange. Where the bank credit represents the most important source of bank money in terms of achieving profits and the most exposed to risks, which is reflected in the bank’s business and its financial indicators. Also, achieving ratio (adequacy of banking capital) corresponded with the guidelines of the Basel Committee for is one of the top concerns of the banking administration. Each of the (z_score) and multiple linear regression models were used to measure the stability of banks and calculated the impact of the study variables on financial stability. The research sample consisted of (6) private banks, these banks are apart of 44 private banks of registered in Iraq Stock Exchange which are operating in Iraq. The research reached to set of conclusions, including that achieving financial stability for banks depends mainly on strengthening the adequacy of capital and then its ability to achieve profits. Also, the research recommended that banks implement the decisions of the Basel Committee (first, second and third) that contribute to enhancing the financial stability of banks.

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